2017 (4) TMI 1258 - AT - Income Tax

Disallowing the deduction u/s.80IA - assessee is seeking deduction under s.80IA(4) on receipt recovered from RTPL subject to claim of certain expenses thereon. RTPL, on the other hand, is seeking claim of deduction on the profits over and above the equivalent cost incurred and payable to the assessee herein subject to some other expenses - Held that - Both assessee as well as RTPL are claiming deduction on profit element which operates in mutual exclusion to each other. Receipt in the hands of assessee is cost in the hands of RTPL. Therefore, the eligibility of deduction under s.80IA(4) in the hands of assessee do not impinge upon the right of RTPL to avail benefit of 80IA(4) which is naturally restricted to an amount after excluding the cost incurred on payment to the assessee herein. Therefore, the entire profits derived from the infrastructure facility, (i) towards development thereof in the hands of the assessee and other (ii) towards operation and maintenance thereof in the hands of RTPL is eligible for deduction. Ostensibly, there is no case of double deduction of the same amount as incorrectly argued on behalf of the Revenue. To reiterate, while the assessee herein is seeking claim of deduction on profit from one part of the activity, RTPL has claimed deduction on other part of the profit from other set of activities. Therefore, no conflict appears to arising as a result of the decision of the Coordinate Bench of the Tribunal in RTPL. In this view of the matter, the claim of the assessee towards deduction under s.80IA(4) of the Act on receipts against its efforts for development of the infrastructure facility deserves to be accepted. Accordingly claim of deduction u/s.80IA(4) of the Act in the hands of assessee is allowed on merits. Whether the loss incurred by the assessee as a result of relinquishment of project is in the nature of trading loss and allowable as a business expenditure or otherwise? - Held that - The road project was meant for the purposes of generating revenue by collecting toll charges. The toll charges were to be collected by utilizing the road project for certain specific period. Thus, the potential collection of toll is not an independent source of income. The assessee has incurred expenditure and undertook the risk which is inherent in carrying on such business. The loss thus incurred is clearly incidental to the nature of assessee s business and is allowable without any doubt. The argument set up by the CIT(A) that the aforesaid Road Project is a new line of activity and thus a new business in distinction with the existing business is singularly fallacious. Admittedly, the assessee is systematically engaged in the road construction/improvement activity. The impugned project giving rise to the loss is merely another activity of similar nature. Each road project by itself cannot be seen as a separate business per se as claimed by the Revenue. Therefore, we do not find any substance in such line of argument raised on behalf of the Revenue. Thus, in our firm opinion, the loss incurred on closure of Jhalawar-Indore Road Project bears the character of revenue expenditure. However, we find some force in the alternative argument on behalf of Revenue that the project was terminated in September-2004 after the closure of the financial year. Therefore, the accumulated expenditure claimed to be the business loss is not attributable to the financial year 2003-04 relevant to AY 2004-05 in appeal. We subscribe to the alternative plea raised on behalf of the Revenue that the accumulated loss on the aforesaid project should be considered to have been crystallized in the year in which the project was ultimately abandoned. Therefore, in our view, the relief towards impugned claim of revenue expenditure is attributable to the subsequent AY 2005-06 where it is crystallized. To this limited extent, the plea of the Revenue is found tenable.

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 147/148 of the Income Tax Act, 1961.
2. Eligibility of the assessee for deduction under section 80IA(4) of the Income Tax Act, 1961.
3. Allowability of business loss incurred on the Jhalawar-Indore Road Project.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment:
The reassessment order was challenged by the assessee on the grounds of jurisdictional defect, arguing that the reopening was based on a mere change of opinion. The Tribunal noted that the original assessment under section 143(3) had already examined the deduction claim under section 80IA. However, new information from another AO indicated that a third party (RTPL) had also claimed the same deduction for the same infrastructure facility. The Tribunal held that the AO's belief of income escaping assessment was based on tangible material and not merely a change of opinion. The Tribunal cited the Supreme Court's decisions in Raymond Woollen Mills Ltd. vs. ITO and ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., emphasizing that the sufficiency or correctness of the reasons is not to be considered at the initial stage of reopening. The Tribunal dismissed the additional ground challenging the validity of the reopening.

2. Eligibility for Deduction under Section 80IA(4):
The assessee claimed deduction under section 80IA(4) for developing an infrastructure facility (Sirohi Road Project), which was contested by the AO based on ITAT Jaipur's decision in the case of RTPL. The Tribunal examined the agreements between the assessee, the Government of Rajasthan, and RTPL. It was found that the assessee developed the infrastructure facility and RTPL was appointed as a toll collection agent. The Tribunal noted that both the assessee and RTPL could claim deductions under section 80IA(4) for their respective components of profits, as the section allows deductions to both developers and operators/maintainers of infrastructure facilities. The Tribunal concluded that the assessee's claim for deduction was valid as it pertained to the development of the infrastructure facility, while RTPL's claim related to its operation and maintenance. The Tribunal allowed the assessee's claim for deduction under section 80IA(4).

3. Allowability of Business Loss on Jhalawar-Indore Road Project:
The assessee claimed a business loss of ?45,29,321 for the Jhalawar-Indore Road Project, which was abandoned. The AO and CIT(A) disallowed the claim, treating it as capital expenditure and noting that the project was terminated after the relevant financial year. The Tribunal found that the expenditure was of a revenue nature, incurred for acquiring a trading right to collect toll charges, and was not for acquiring an asset. The Tribunal held that the loss was incidental to the assessee's business and allowable as a business expenditure. However, the Tribunal agreed with the Revenue's alternative argument that the loss crystallized in the subsequent financial year (2004-05) when the project was terminated. Consequently, the Tribunal allowed the assessee to claim the loss in the subsequent year, holding that the loss could not be claimed in the assessment year 2004-05.

Conclusion:
The Tribunal partly allowed both appeals. The challenge to the reopening of assessment was dismissed, the claim for deduction under section 80IA(4) was allowed, and the business loss on the Jhalawar-Indore Road Project was allowed to be claimed in the subsequent year.